A Commentary on Recent Legal Developments by the Opinions Group of McCarthy Tétrault LLP

Amato v. Welsh, 2013 ONCA 258 marks an interesting development in the law – it suggests the previously inviolable doctrine of absolute privilege which protects lawyers from suit may admit an exception. The Court of Appeal upheld the decision of the lower court, saying that it is possible that a court could find that the duty of loyalty trumps the doctrine of absolute immunity.

The centuries old doctrine of absolute privilege permits lawyers, judges and other players in legal proceedings to shield themselves from suit for words spoken during such proceeding, provided the words were uttered for the purposes of the proceeding and by someone under duty to make such statements.

This case has interesting wrinkles regarding the application of the doctrine of absolute privilege. The first is whether the doctrine applies so as to bar claims against a lawyer by a client for statements made by the lawyer in another proceeding. The second is whether the doctrine applies, not to a statement of a lawyer, but the alleged failure to make a statement.

Facts

Peter Welsh, Julia Dublin and their law firm, Aylesworth LLP (collectively, “Dublin et al”) represented Robert Mander, Peter Sbaraglia, and their several affiliated corporations (collectively, the “Mander Group”) in connection with allegations the Mander Group was, in essence, a Ponzi scheme.

The OSC commenced an investigation of Mander and others. As part of that investigation, OSC representatives examined Mander and Sbaraglia. Dublin represented both men at their OSC examinations.

Prior to the OSC examinations, S.A. Capital had also retained Dublin because it had invested more than $10 million in the Mander Group and sought Dublin’s opinion on whether the existing arrangements between S.A. Capital, its clients and the Mander Group complied with applicable securities laws.

In its Statement of Claim, S.A. Capital alleges that Dublin et al were obliged to tell the OSC about S.A. Capital’s involvement as investors in the Ponzi scheme and that the failure to do so amounted to misrepresenting the facts to the OSC. S.A. Capital contends that if Dublin et al had disclosed, the OSC would have realized that the Ponzi scheme was larger than represented and might have chosen to act. If this had occurred, S.A. Capital says, its chances of recovering its investment would have been much greater. S.A. Capital also claims that, but for Dublin et al’s breach of their duties, S.A. Capital would have taken steps to protect itself from the Ponzi scheme. Instead, it alleges it suffered damages in the amount of $14 million.

Because this was a motion to strike, the issue on the appeal was whether it was plain and obvious that the absolute privilege doctrine precludes a client from asserting a cause of action against his or her lawyer for alleged breaches of fiduciary duty and the duty of loyalty based on statements made or omitted by the lawyer while representing different clients in a quasi-judicial proceeding.

The appellant lawyers argued that there are no exceptions to the doctrine of absolute privilege that attaches to a lawyer’s statements in court proceedings, regardless of the importance of the duty that is said to have been breached in a particular case by the statements at issue. They also argued that, as a matter of public policy, there is no justification for the recognition of any exception to the privilege. The Divisional Court, the appellants argued, had erred by unjustifiably recognizing an exception to the absolute privilege doctrine.

The Ontario Court of Appeal disagreed, refused to strike the offending paragraphs and allowed the respondents’ claim to proceed to trial.

Decision

The Ontario Court of Appeal’s decision is notable for its thorough review of the historical development of the both the doctrine of absolute privilege and the duty of loyalty.

Dublin et al did not question the right of the S.A. Capital to sue in negligence, nor did they attack the S.A. Capital’s claims of breaches of fiduciary duty and the duty of loyalty per se. Rather, Dublin et al submitted that the latter causes of action may be founded only on the fact of the Dublin’s’ alleged competing retainer. Dublin et al argued that it was not open to S.A. Capital to found its claims on statements made or omitted by Dublin during the entirely separate OSC proceeding.

The Court found that Dublin’s proposed application of the absolute privilege doctrine was novel in the circumstances, and held that “the boundaries of the absolute privilege doctrine are not firmly set. And its scope and application continue to evolve.” The Court went on to say that:

…it is at least arguable that, in a proper case and on a full factual record, the duty of loyalty could be held to trump the immunity afforded by the doctrine of absolute privilege. In my opinion, when these two important principles come into conflict, the conclusion that absolute privilege necessarily overtakes the lawyer’s duty of loyalty is not inevitable.

There was also the question of the applicability of the doctrine of absolute privilege, not in the case of a statement, but in the case of omissions or silence (the alleged non-disclosure of material facts in dealings with the OSC). The Court found that while the “doctrine is intended to ensure that counsel are able to zealously advocate on behalf of their clients without fear of recrimination or liability for doing so” there was no case law with respect to its application to silence.

The Court also found that there was no case law that had considered or decided whether a client (“Client A”) may bring a claim against his or her lawyer based on the lawyer’s alleged statements or steps in a proceeding on behalf of another client (“Client B”). This question was not considered in in an earlier seminal authority, Demarco v. Ungaro (1979), 21 O.R. (2d) 673 (H.C.J.). Nor was there any authority respecting the claim of the primacy of absolute privilege

For these reasons, the Court dismissed the appeal and allowed the matter to proceed to trial.

The issue in this case arises from the competing views of the retainer and duty of loyalty. On an expansive view (the one adopted by the Court), the related nature of the OSC investigation to the original retainer required Dublin et al to continue to represent the best interests of the plaintiffs throughout. On the narrower view, the duty of loyalty ought to be solely to the alleged wrongdoer and lawyer and her firm had a duty to zealously represent the alleged wrongdoer without any divided loyalty. These conflicting interpretations of the duty of loyalty, especially in light of the doctrine of absolute privilege, will be closely watched as this case moves forward to trial.

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This blog expresses our views on upcoming and decided appeals of interest to Canadian businesses and professions. It also comments on the impact of legal changes that may affect appellate procedure, and relates insights and best practices derived from our experiences handling complex appeals.

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McCarthy Tétrault’s active lawyers have argued nearly 1,300 appellate cases in nine out of ten provinces and one territory. These include 128 cases in the Supreme Court of Canada, 22 of which were decided in 2014-2016 alone. We have represented clients throughout the country in a diverse range of industries, appearing in some of the most high-profile, precedent-setting cases in Canadian legal history.